Fed Holdings Of U.S. Treasuries Surpass China's

Seeking Alpha ^ | 2-6-2011 | Doug Carey

[cranked]

Oh wait, so we are the largest holders of our own debt and not the Chinese? No one is in jail yet? /s =.=

[DuncanWaring]

The other thing holding back hyperinflation is that most wages have no way to rise to meet hyperinflation.

I'm pretty sure wages in Zimbabwe didn't rise to meet their hyperinflation; didn't keep them from seeing hyperinflation.

[sickoflibs]

RE :”There are jobs, they just aren’t here. Commodity demand is coming from outside the country.”

I was being sarcastic.

So we stimulated jobs overseas with QE2 so we can have unemployment AND inflation here? What a brilliant idea. Actually, this is exactly what was expected to happen by some here. Sadly the MSM wont talk about it. They want to carry the election theme that Obama 'did all the right things'.

[jpl]

A lot of government debt is held by domestic bondholders, for example guys like Bill Gross, the CEO of PIMCO.

When the government eventually defaults on their obligations, these fools are going to lose more wealth than anyone in the history of mankind. It's going to make the credit default swap collapse look like a day on the beach.

[Toddsterpatriot]

if the Treasury offers bonds and nobody buys them at the”target” interest rate

The "target" interest rate is whatever it takes to sell them.

who will buy those bonds from the Fed?

The Fed can hold the bonds until maturity.

[investigateworld]

The free market in action: Every one has all the toys they want or need, hence they have gone down in price.

But food and energy, the things we can't do without? Yep, they're climbing

Full disclosure: I'm long on wheat.

[FromLori]

Excellent advice I agree I check my change and set aside the valuable coins. I did a little work for a fellow who paid me in silver I saved every bit of it. I have a collection :) so to speak for bad times and a store of food and supplies. Paper/digital money can also disappear rapidly in a crisis situation so I think people would be wise to keep some on hand and should be prepared to defend themselves.

[Free Vulcan]

Right now alot of the dollars swimming out there blam are going to stocks, bonds, some to commodities, but mostly to speculators. The consumers aren’t seeing those dollars in their hands.

When it’s going to get serious is when money starts coming out of other markets and from foreign govts with large trade surpluses with the U.S. to go into commodities. That will start the spiral.

Then it’s up to the Fed. If they keep printing, inflation goes out of control. If the cut the money supply, that will kill it, but kill the economy too. One way or the other, the average joe will get the shaft out of it.

[FromLori]

We had one of those loans too but I also remember CD’s were paying 20%.

Ben Bernanke’s ‘70s Show

http://freerepublic.com/focus/f-news/2669869/posts

“Is Federal Reserve Chairman Ben Bernanke stoking inflation? Of course he is. Anyone with common sense knows that if you give $600 billion cash to the banks with no qualifications — as he did with the second round of quantitative easing — they will use it to speculate in the markets. JPMorgan Chase (JPM) just bought $1 billion of copper.”

http://freerepublic.com/focus/f-news/2669868/posts

[kiryandil]

I'm pretty sure wages in Zimbabwe didn't rise to meet their hyperinflation; didn't keep them from seeing hyperinflation.

True. Wonder how long they could keep the lid here on if we have hyper price spikes in necessities?

[blam]

“Is Federal Reserve Chairman Ben Bernanke stoking inflation? Of course he is. Anyone with common sense knows that if you give $600 billion cash to the banks with no qualifications — as he did with the second round of quantitative easing — they will use it to speculate in the markets. JPMorgan Chase (JPM) just bought $1 billion of copper.”

[kiryandil]

Yep. Primary dealers are front-running the Fed, and us taxpeasants are the bag-holders.

[DuncanWaring]

Hyperinflation will occur when the “Full Faith and Credit” of the US Government becomes as valuable as the “Full Faith and Credit” of Bernie Madoff.

The hyperinflation the Weimar Republic experienced was sort of “medium”, as hyperinflations go.

They went through a period of about six months during which prices picked up a “0” on the end every three to four weeks.

At that rate, oil goes from $100 per barrel to $1,000,000 per barrel in less than four months. Gasoline goes from $3 per gallon to $30,000 per gallon in the same time.

There’s no way to keep a lid on that.

[Brilliant]

They simply credit bank accounts. It amounts to the same thing, though.

[Brilliant]

The question in my mind is whether the treasuries held by the Fed are considered part of the national debt.

[April Lexington]

who will buy those bonds from the Fed? The Fed can hold the bonds until maturity.

But then, on that day, the Treasury will have to redeem the bonds at face value. Whereupon they will have to either get some money from the tax payers or borrow some money from folks interested in buying new bonds or sell new bonds to the Fed if all of the other bond buyers are demanding an interest rate that is outside of where the Treasury needs it to be.

[Toddsterpatriot]

But then, on that day, the Treasury will have to redeem the bonds at face value.

Yes, the Treasury has to pay off bonds when they mature. Same as it ever was.

Whereupon they will have to either get some money from the tax payers or borrow some money from folks interested in buying new bonds

Yes, same as it ever was.

or sell new bonds to the Fed

The Treasury doesn't sell bonds directly to the Fed.

if all of the other bond buyers are demanding an interest rate that is outside of where the Treasury needs it to be.

You keep saying that. It doesn't matter what the Treasury "needs rates to be". They sell say $32 billion in 3 year Notes (tomorrow) and they may prefer rates stay near 1.25%, but if the bids are all at 1.5%, that's the rate.

[April Lexington]

They sell say $32 billion in 3 year Notes (tomorrow) and they may prefer rates stay near 1.25%, but if the bids are all at 1.5%, that's the rate.

All true. The Treasury does not sell the bonds to the Fed, it sells them to the Golemansax. The Golmemansax is not in the business of funding the Federal deficit so it resells the new bonds to its customers for a spread (as it is not an eleemosynary institution). The customers take the new bonds at the Golmansax price. But... The Ben Bernank is one of the customers and if the Ben Bernank doesn't show up and buy the new bonds from the Golmansax, the Golmansax is stuck with the new bonds because the Chinese, Russians, oilers and other investors won't take the new bonds at the bid plus spread interest rates. So... without the Ben Bernank buying the new bonds, the Golemansax is, well, to be profane... Skreeewed. they would become the funder of the American deficit if they can't sell the bonds at a profit.

[Toddsterpatriot]

The Treasury does not sell the bonds to the Fed, it sells them to the Golemansax.

Or any of the other Primary Dealers.

BNP Paribas Securities Corp.
Barclays Capital Inc.
Cantor Fitzgerald & Co.
Citigroup Global Markets Inc.
Credit Suisse Securities (USA) LLC
Daiwa Capital Markets America Inc.
Deutsche Bank Securities Inc.
Goldman, Sachs & Co.
HSBC Securities (USA) Inc.
Jefferies & Company, Inc.
J.P. Morgan Securities LLC
Merrill Lynch, Pierce, Fenner & Smith Incorporated
MF Global Inc.
Mizuho Securities USA Inc.
Morgan Stanley & Co. Incorporated
Nomura Securities International, Inc.
RBC Capital Markets, LLC
RBS Securities Inc.
SG Americas Securities, LLC
UBS Securities LLC.

So... without the Ben Bernank buying the new bonds, the Golemansax is, well, to be profane... Skreeewed.

Since the Treasury is going to sell over $1.5 trillion in new debt this fiscal year and the Fed is only planning on buying $600 billion, I guess 60% of the buyers are skreeewed.

[April Lexington]

Yes, grasshoppah, they would be skreeewed because the primary dealers are putting their balance sheets on the line believing they can bid at a rate, get the bonds and sell the bonds to investors to turn a profit on the trade. If they could not profit on the trade, they would not trade. They are not in the business of buying Treasuries to hold or to lose money. If ONE major buyer steps out of the market (like the Fed with its 40% of the aggregate demand)the primaries are stuck holding bonds. This would impact Christmas bonuses. The Fed, in essence, is creating the demand necessary to keep interest rates within a targeted band range. If not, why bother with QEII? The Fed is buying up bonds to keep interest rates low not for fun and excitement. If interest rates continue to increase, bond holders will see continued depreciation in portfolio value unless held to maturity. And... our national debt service will increase, putting more pressure on the deficit. Its all ugly stuff. I would prefer the Fed not drift from its historical Open Market activities which was designed to regulate the money supply, not fund the national deficit.